More workers join retirement plans

Participation rises for first time in nine years in 2007; will gains survive 2008?

SAN FRANCISCO (MarketWatch) -- For the first time in almost a decade, the portion of workers participating in a workplace retirement plan jumped higher in 2007, but those gains may be wiped out in 2008 given that the stock market plays a big part in workers' decisions, according to a study released Thursday by the Employee Benefit Research Institute.

In 2007, 41.5% of all U.S. workers took part in a retirement plan at work, up from 39.7% in 2006, according to the study, which measured participation in 401(k) and other defined-contribution plans as well as traditional defined-benefit pensions. EBRI is a Washington-based nonprofit research institute.

Among all full-time, full-year, wage-and-salary workers ages 21 to 64 -- the workers likeliest to be offered and take part in a plan -- 55.3% participated in a workplace plan last year, up from 52.7% in 2006.

That's the first significant increase in participation since 1998, according to the study. Retirement-plan participation rates jumped in the 1990s, declined in 2001 and 2002, remained flat in 2003 and 2004, and then declined again in 2005 and 2006.

Workers' participation is "strongly tied to macroeconomic factors such as stock-market returns and the labor market," said Craig Copeland, a senior research associate at EBRI, in the study.

"Better macroeconomic conditions of the late 1990s resulted in higher levels of participation, while less positive macroeconomic conditions of the 2000s led to lower levels of participation," he said in the report.

That implies that participation levels will drop again this year thanks to the steep decline in stock-market returns and worsening job market. In 2000 and 2001, "when the stock market went down, there was a fairly significant decline in the participation level, especially among workers in larger companies," Copeland said in his email.

"Therefore, I would expect to see the same type of decline" this year, he said. Retirement-plan participation dropped about three percentage points from 2000 to 2002.

Next two months 'critical'

Still, while the stock market is ravaging retirement plans, it's also true that automatic enrollment is on the rise, thanks in part to the government clarifying the rules governing employers with regard to this practice. With automatic enrollment, employers automatically add workers to the plan. Employees have to make an effort to opt-out, rather than make the effort to join in.

"Many more of the large 401(k)-type plans have been rolling out auto-enroll plans during 2008 due to the finalizing" of regulations, Copeland said. "Consequently, new workers should have much higher participation levels in 2008 than they did in 2000-2002."

Also, "some of these auto-enroll plans have been auto-enrolling their entire work force, which would also have a positive effect. This was something that was very rare in 2000-2002 that has become more prevalent in 2008 (but not the norm)," he said.

Copeland says the next two months will go a long way to determine what this year's overall participation rate will be. "If we continue down with the Dow below 8,000 and S&P below 800, a decline [in retirement-plan participation] is almost assured. If the markets can come back -- not all the way but up from where we are today [but] back above 10,000 and 1,100 -- auto-enrollment could win out or hold steady the gains made in 2007," he said.

"These last two months are critical, as many workers are going to be starting to think about elections for next year in November and into December," he said.

Other factors play a part

Not all workers have access to a workplace plan, though the portion is rising. In 2007, about 58% of all workers 21 to 64 were employed by a firm or union that offered a plan (either defined-contribution or defined-benefit plan), up from 56% in 2006.

Among full-time, full-year workers in that age group, about 63% were offered a plan in 2007, up from about 61% in 2006.

Older workers are likelier to participate in a workplace plan, with about 64% of wage-and-salary workers 55 to 64 taking part, compared with 28% of those 21 to 24.

Among all workers, men were likelier to participate in a plan, but among the full-time, full-year workers, 57% of women took part in a workplace plan versus 54% of men, according to the study, which noted that women's lower participation in the broader group is a result of their lower overall earnings and lower rates for full-time work than men.

Workers with higher education levels, higher income and who are married are likelier than other groups to participate in workplace plans, according to the study.

At 68% of workers participating, Wisconsin had the highest rate, while Florida, with 42%, had the lowest level. Overall, workers in the South, West and Southwest regions had the lowest participation levels, while those in the upper Midwest and Northeast had the highest rates, according to the study.

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